Receipts, Rumors, & Red Flags: What Actually Triggers an Audit (and What Doesn’t)

You’ve heard the horror stories, the fearsome IRS swooping in to audit a company when they least expected it. Fortunately, most of what you’ve heard is probably wrong. Today we’re going to look at the reality of an audit, why the myths are false, and what actually puts you on the IRS radar.

Audit Myths That Need to Die Already

There are plenty of rumors swirling around about how to get audited, but most of them are myths. For example:

Myth: Filing early makes you a target

Reality: Nope! Filing your taxes early just gives you more time to fix any issues before deadlines hit.

Myth: Claiming your daily coffee can trigger an audit

Reality: The IRS is going after real fraud, not $5 coffees. You should check with your tax expert though to see what you can reasonably deduct.

Myth: Claiming a home office deduction is an automatic audit

Reality: While possibly true in the past, this isn’t an issue these days. As long as you follow the rules, stick to legit deductions, and don’t try to scam the IRS, it shouldn’t be an issue.

What myths have you heard?

The Real Red Flags the IRS Looks For

The entire point of an audit is to ensure there’s no fraud going on. They’re not going to audit over a missing $10, so what DOES catch their attention?

Large numbers are often a trigger for further investigation. If you have ridiculously high deductions, especially compared to your reported income, it’s going to get noticed. That’s why those receipts are important.

Any type of business that depends mostly on cash can also be suspect. A salon, bar, or farmer’s market shop could be more suspicious since it’s easier to hide income in the form of cash. If there’s no paper trail, it can look suspicious.

Under-reporting can actually be an issue too. You may feel like you can get away with skipping a few income streams, but there are data-matching tools available to the IRS. They can spot discrepancies pretty quickly! And to that note, a big income difference on your 1099 or W-2 can also trigger an audit.

Excessive home office deductions may get noticed too. Are you claiming half your home’s mortgage for your home office deduction? That’s probably going to catch someone’s eye.

Let’s Get Audit-Proof

Any business can be audited, but if you have all your ducks in a row, it shouldn’t be a big deal. Less than 1% of tax-payers are actually audited each year, so let’s focus on how you can basically audit-proof yourself.

Step 1: Keep Records

Make sure you maintain any mileage logs, receipts, etc. And keep it organized so you’re not scrambling last minute to find that bank statement!

Step 2: Report ALL Income

Yes, even those side hustles. All income counts, so you need to include it. If you do this, even during an audit, there won’t be anything amiss.

Step 3. Don’t Panic, Get Help

Finally, you don’t have to do this on your own. A tax expert can help you stay on task and will ensure you are getting the deductions you qualify for. You need someone you can trust to walk you through your taxes and ensure nothing hinky is going on!

Need a Hand with Your Taxes?

If you’re still nervous about managing your taxes and filing them correctly, Ask Anna Tax is here to help. Contact me today to learn more about my services.